Malcolm's Market Eye: August 8

The UK stockmarket has joined in with those around the world in its nervous reaction over a possible collapse in the global credit markets as the repercussions of the US sub-prime lending crisis become clearer

The UK stockmarket has joined in with those around the world in its nervous reaction over a possible collapse in the global credit markets as the repercussions of the US sub-prime lending crisis become clearer.

The FTSE 100 Index fell as punters raced to take their profits before a major fall takes place. Plenty of investors can still recall the stockmarket collapse of 1973-74 when the FT 30 Share Index, the main market measurement tool of the time, sank to 140 ñ a level last seen at the time of Dunkirk in 1940.

Even more will recall the enormous two day collapse of October 1987 and the long bear market from the beginning of 2000 to 2004. At times like this investors are painfully reminded that shares can go down as well as up in value. In the UK, inflation fears bubbled up against as factory gate prices rose in July 2007 at the fastest rate for 15 years. The City is unanimous in forecasting UK interest rates at six per cent by the end of this year.

The pharmaceutical and biotech sectors suffered the backwash of negative publicity from the shock outbreak of foot and mouth disease, with the finger of suspicion aimed at a research laboratory. This was not welcome news to any company with research laboratory operations ñ which includes the whole of the pharmaceutical and biotech sectors. However there was little marking down of the sectors in the market, which instead slashed back the share prices of restaurant and pub groups on the basis we will all eat less meat.

GlaxoSmithKline (GSK) saw its share price jump on relief that the US regulators are likely to allow the drug giant to keep its diabetes medicine, Avandia, on the market. The FDA panel examining Avandia (roseglitazone) instead recommended a stronger ëblack boxí warning drawing attention to the increased risk of heart problems associated with Avandia.

Now we wait to hear if the FDA will accept the panelís advice ñ as it normally does. David Graham, a scientist at the FDA, produced research suggesting Avandia carries with it major health risks, unlike its chief rival Actos (pioglitazone), made by Takeda. GSK also has block buster drugs Avandamet and Avandaryl which include the same active ingredient as Avandia.

Bid talks for AbcamÖ and Proximagen NeuroscienceBids and deals continue to enliven the pharmaceutical and biotech sectors. Latest candidate for a bid is antibody seller Abcam which saw its share price rise 11 per cent after it told the market it is in bid talks. Abcam came to the Alternative Investment market in 2005 and has been one of the few biotechs to do well, the share having risen from its float price of GBP 1.67 to GBP 3.45 after bid talks were announced.

Proximagen Neuroscience, the drug discovery company, saw a sharp rise of 26p to 115p in its share price after announcing it is talks ëwith a number of partiesí who are interested in buying Proximagen.

SkyePharmaís flutiform delayedSkyePharma saw its share price plunge GBP 0.035 to GBP 0.18 after disclosing that its Flutiform inhaleable asthma treatment could be held back until H2 2008 for the filing of the drug with the US regulator creating substantial delays in Flutiform hitting the massive US market.

The FDA has unexpectedly raised questions over an aspect of SkyePharmaís clinical trial for Flutiform. This means SkyePharma will have to do more trials at a cost of GBP3m to GBP5m

SkyePharma has clinched a deal with Abbott Laboratories to develop the drug in the US and with Mundipharma in Europe. It is planning to file for market approval in Europe towards the end of 2008. Abbott has agreed to pay up to GBP5m for the extra regulatory costs in the USA.

Acambis settles litigation with Bavarian NordicAcambis, the smallpox vaccine manufacturer, has reached agreement over its litigation with Bavarian Nordic of Denmark. Nordic had accused Acambis of misappropriating trade secrets and tried to stop Acambis exporting its smallpox vaccine to the USA.

Nordic has given Acambis a licence to some of its patents in return for an upfront fee ñ the amount of which hasnít been disclosed. Acambis is expecting to get US approval for its smallpox vaccine soon and also has substantial cash.

AstraZenecaís H1 FY07 results disappoint marketAstraZeneca posted a pre tax profit of US dollars 4.26m on turnover of US dollars 14.2 billion. In the same period in the previous year pre tax profit was US dollars 4.25m and turnover was USD 12.8bn. Second quarter sales were up six per cent to USD 7.3bn, but operating profits fell by 11 per cent.

Sales of AstraZenecaís five key blockbuster drugs, Symbicort for asthma, Arimidex for cancer, Crestor for cholesterol and Nexium for stomach ulcers, grew by a combined 15 per cent in H1, although Nexiumís sales only grew by four per cent they were flat in Q2, and fell by one per cent in the US due to competition from the generic drug omeprazol.

The launch of controlled release Seroquel is due this month. Recent acquisition Medimmune added 14 new pipeline products while drugs for prostate cancer, diabetes and lung cancer are now in phase III trials.

AstraZeneca has applied for a court order to prevent Orion Corporation from selling two drugs in Finland on the grounds that Orion may have trespassed against patents. Orion makes generic versions of Astraís Casodex and Seroquel drugs and denies infringing patents.

More news from Shire as New River acquisition beds downOn a bad day for the market, Shire Pharmaceuticals stood out with a share price bounce to GBP 12.37. The company posted a loss of USD 1.6bn on sales of USD 1.1bn for H1 FY07. This compares with a pre-tax profit of USD 107m on sales of USD 850m in the first half of 2006. The bid loss stems from the one of write off of the intangible assets of its latest purchase, New River.

The market shrugged off the accountancy convention which produced the loss and concentrated on the good news from Shire. The newly launched Vyvanse, for attention deficit hyperactivity disorder will eventually replace its existing drug Adderall XR, which faces generic competition.

Shire reckons Vyvanse is the superior drug and says patients will have no difficulty switching from Adderall to Vyvanse. The latter drug is believed to release into a patientís system more evenly and comfortably ñ with no ëspikeí effects ñ than existing drugs.

Adderal, despite generic erosion, still recorded a 16 per cent jump in sales to USD 255m in Q2 FY07. Other promising drugs include the anti-scarring drug Juvista, in-licensed from Renovo, while Dynepro for anaemia did well in Germany and Elaprase for Hunterís syndrome saw sales boom by over 60 per cent to USD 42.7m.

Malcolm Craig, a freelance financial journalist and author of 14 books on aspects of successful investment, is one of the UKís most respected investment commentators.